Defaulted Student Loans
There are a number of students who graduate every year. Most of these students
would have taken student loans to fund their education. But once they are
out one major question haunts all of them, How to payback? There are times
that the student would opt for bankruptcy if the loan amount is beyond the
reach of paying back.
There are a very few cases where the unsecured student loans have been discharged in bankruptcy. But when seen legally the defaulted student loans are supposed to be paid back in all the situations. The payment period for a student loan starts from 90-120 days after the session ends. However the repayment period would depend on the type of loan that the student has taken. In case the student does not start making payments towards the loan for more than 270 days after the session has ended then it is termed as defaulted student loan. The time period after 90 or 120 days till 270 days is called as the delinquency period.According to the norms of the higher education act the lender has a right to trace the borrower during the delinquency period.
In case the lender fails to hunt down the borrower or is unable to make him start payments towards the student loan then the case is handed over to the government agencies. The government agency that is given the case of defaulted student loan is either the Federal Department of Education or any guarantee agency of a particular state. When the student loan enters the default status the maturity date of the loan would dissolve and the whole amount of the student loan becomes due immediately. In such cases the borrower is usually required to pay the full amount at once.The collection agencies follow very strict procedures for collecting the defaulted student loans. Because of these strict measures the number of defaulted student loans have decreased over the time. The main aim of the collection agency is to make the repayment of the student loan simpler for
the borrower so that he can pay off the loan easily. But still if the borrower does not start repaying the student loan then the collection agency would take some very strict actions to recover the amount.
Usually the collection agency would follow any one of the three options that are mentioned below.
The treasury offset: under this option the department of education requests the treasury department to perform a Federal offset against the refunds that are provided on the income tax so that they can collect the loan debt from the students who have defaulted on the loans. This would mean that the defaulting student would be deprived of the Federal income tax refunds till the time all the student loan debt is paid off.
Wage garnishment: under this option the Federal department of education can get in touch with the employer of the defaulting person and would request the employer to deduct 10-15%of the salary of the person. This amount would go towards the repayment of the student loan. This process is continued till the time the total amount of loan is repaid. This action is however taken against people who voluntarily default on the student loans.
The legal procedures: the collection agencies can also take the defaulted student loan case to the court. The students who default voluntarily are required to face prosecution in either the state or the Federal district court. The case is filed so that the defaulted student loans can be recovered and also the cost of the court case and the fees of the authority. However the legal procedure is the last option that is taken against the student.
Students that default on the student loan are also barred from other Federal student loans benefits like deferment or forbearance. There are many other serious consequences that the student would undergo in case he or she defaults on the student loan. Once that the student has defaulted on the student loan then the student would further be denied of any other Federal student loan till the time he would pay six regular payments towards the amount that has been decided at the end of the defaulted student loan case. There are several consequences that people do not consider when defaulting on the student loan. The defaulted student loan can, not only bar the students from getting benefits but also the student would be hindered from getting any further financial assistance to continue his or her education.
If the student who has defaulted on a student loan has a professional license in his career then it should be kept in mind that the license can be taken away for the time till the student pays back the defaulted student loan. When the student defaults on the student loan then the student is not only supposed to pay back the student loan but is also required to bear the cost of the collection. This fee would be around 25% of the loan amount that is to be paid. In case you are defaulting or planning to default on the student loan then you should calculate the costs and then take your decision. Defaulted student loans can have severe consequences and you can fall into a lot of trouble because of this. So make sure that you have made your decision properly. It is better that you pay off the balance rather than defaulting on it.
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